The Reserve Bank of India (RBI) has proposed major changes to strengthen customer protection against digital fraud in urban and rural cooperative banks. The regulator has issued draft amendment guidelines aimed at improving safeguards as the use of digital banking continues to grow rapidly.
The proposed changes clarify the rules related to limiting customer liability in unauthorized electronic banking transactions and introduce a more detailed definition of “fraudulent electronic banking transactions.”
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What Will Be Considered Digital Fraud
According to the draft guidelines, digital fraud will include cases where:
- Payments are made using credentials obtained through fraud
- Customers are forced or pressured into approving transactions
- Customers are misled into transferring money through phishing, social engineering, or other deceptive tactics
RBI said stronger monitoring and alert systems are necessary as UPI, mobile banking, and other digital payment platforms are increasingly used by customers of cooperative banks.
Instant Alerts for Transactions Above ₹500
Under the proposed rules, cooperative banks will be required to send instant SMS alerts for every electronic transaction exceeding ₹500.
If customers have registered their email IDs with the bank, email alerts will also be mandatory. The RBI believes timely alerts will help customers quickly detect suspicious transactions and report them before further losses occur.
Mandatory 24×7 Fraud Reporting System
The draft directions also require cooperative banks to establish round-the-clock mechanisms for customers to report fraudulent transactions.
Banks will have to provide multiple reporting channels, including:
- Phone banking services
- SMS reporting facilities
- Dedicated email addresses
- Interactive Voice Response (IVR) systems
- Toll-free helplines
The objective is to ensure that customers can report fraud at any time without delay.
Limited Customer Liability
RBI has reiterated that customers will have zero liability if fraud occurs due to negligence or deficiencies on the part of the bank.
Similarly, if a third-party breach occurs and the customer reports the fraudulent transaction within five days, the customer will not be held financially liable.
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Compensation for Small Fraud Cases
The draft guidelines also propose a compensation mechanism to provide relief to victims of small-value digital fraud.
In cases involving losses up to ₹50,000, customers may receive 85% of the net loss or up to ₹25,000, whichever is lower. This compensation will apply to losses occurring within one year of the new rules coming into effect.
Proposed Implementation from July 1, 2026
The proposed amendments are expected to come into effect on July 1, 2026.
The RBI has invited comments and feedback from stakeholders—including cooperative banks, industry bodies, and the public—until April 6, 2026, after which the final regulatory framework will be issued.
Experts believe the new rules could significantly improve digital fraud protection and strengthen customer trust in the cooperative banking sector.
About the author – Rehan Khan is a law student and legal journalist with a keen interest in cybercrime, digital fraud, and emerging technology laws. He writes on the intersection of law, cybersecurity, and online safety, focusing on developments that impact individuals and institutions in India.
